Introduction

Employment status is increasingly important as new ways of working, such as in the ‘gig economy’, become more commonplace. Organisations providing daily services to consumers, such as food delivery and taxis, or providing courier services to other employers, rely on a workforce who may be combining work with education or caring responsibilities, or who just want a better work-life balance, and who wish to work only when they choose to. Employers need to know what their responsibilities are in this new environment, not least because of the legal risks involved if they don’t.

This factsheet explains the legal tests for employment status in the UK, and why they are important for establishing workforce rights. It describes how employment status is defined by case law, and outlines how the law might change in this area as a result of the Taylor report.

Explore our stance on employment status, rights and regulation in more detail, along with actions for Government and recommendations for employers.

In UK employment law, there are three principal categories of employment status:

  • Employees working under a contract of employment, who have full employment right.
  • The genuinely self-employed, who are independent contractors.
  • Workers, who have a status in between employment and self-employment.

But labels don’t determine employment status – that depends on the terms of the contract and how the arrangements operate in practice.

Organisations may have all three categories. For example, a chief operating officer, reporting to the chief executive, and fully integrated within the business, is likely to be an employee. A freelance designer, running their own business, and working for other clients, is likely to be self-employed. Sales representatives, receiving a retainer and commission, may be workers.

There are also other types of status, such as partners, directors and members of limited liability partnerships (LLPs).

Typically, employment status issues occur when there is a dispute between an organisation and an individual working for it – otherwise working relationships can continue for years without any certainty about employment status.

Modern working practices, such as zero-hours contracts, and the supply of labour via digital platforms, are bringing employment status under increasing scrutiny. Growth in the gig economy where payment is per job, and workers lack guaranteed hours and job security, has led to a stream of tribunal cases.

All organisations need to understand the difference between the employment rights of employees, the self-employed and workers.

Which status applies also has significant tax implications (see ‘Differences between tax and employment definitions’ below).

Employees have the right to:

  • Protection against unfair dismissal.
  • A statutory redundancy payment after two years’ service.
  • Minimum statutory notice.
  • Statutory maternity, paternity, adoption, and shared parental leave and pay, and statutory sick pay.
  • TUPE protection (provided TUPE applies to the transfer of undertakings concerned).
  • Request flexible working.
  • Paid time off for trade union duties and for ante-natal care, and unpaid time off to deal with emergencies for a dependant.

Both employees and workers are entitled to:

  • National Minimum Wage/National Living Wage.
  • A written statement of terms on the day the contract starts – workers as well as employees have this right from 6 April 2020.
  • An itemised pay slip on or before the day payment is made – from 6 April 2020.
  • Working time rights, such as weekly and daily statutory rest breaks, and a 48-hour maximum working week (although they can choose to opt out and work for longer).
  • A companion during a disciplinary or grievance hearing.
  • Protection from discrimination and from mistreatment following whistleblowing.
  • Protection from unlawful deduction from remuneration.
  • Health and safety protection.
  • Auto enrolment on to a pension scheme.
  • Paid annual leave.

Self-employed contractors have no employment rights, apart from:

  • Health and safety protection.
  • Protection from discrimination (in some cases) and from mistreatment following whistleblowing.

CIPD members can find out more in our Employment status law Q&As.

The self-employed pay their own tax and national insurance. Businesses must deduct income tax and National Insurance (NI) contributions, and pay employers’ NI, for both employees and workers.

But the legal tests for tax purposes and to determine employment rights are not the same, so an individual may be taxed as an employee but not have full employment rights.

The ‘worker’ concept only exists in employment law, and is a catch-all category used to provide those who would otherwise be self-employed, but who have some employee characteristics (such as a degree of control by the business), with meaningful legal rights.

Employees work under a ‘contract of service’; the self-employed work under a ‘contract for services’. Workers provide services personally to an organisation but under an arrangement that is looser than employment.

The principal statutory definition of a ‘worker’ is found in section 230(2) of the Employment Rights Act 1996.

Courts and tribunals have largely determined the tests for deciding whether someone is an employee, a worker or self-employed. Factors indicating employment include an individual:

  • having to perform the work personally
  • having to carry out the work when required (and the organisation must also be obliged to provide it)
  • being integrated within the business (for example, by being part of a team)
  • being controlled by the organisation in the way the work is done.

Courts will also look at whether the nature, length and pay and benefits of the engagement are consistent with other employees in the organisation.

The dividing line between employment and self-employment can be blurred, but factors suggesting self-employment include individuals:

  • actively marketing their work outside the organisation, being able to decide how it is done, and (possibly) providing a substitute to carry it out
  • not being integrated within the business, or subject to a high level of control
  • supplying their own equipment
  • accepting the risk of not being paid if the work is not done
  • submitting invoices for payment
  • having no obligation to accept work.

Workers tend to have some of the characteristics of both, and the definition of a ‘worker’ has been further embellished by a number of gig-economy cases. Claims brought against organisations such as Uber, Pimlico Plumbers and CitySprint concerned whether the claimants were genuinely self-employed, or workers. Generally these workers could not be employees because they could choose to work when they wanted to, or work no hours at all.

Since the Supreme Court’s decision in Autoclenz Ltd v Belcher (2011), the courts are more willing to look beyond what the contract says (and the labels applied to each party) to how the relationship worked in practice. For example, in Aslam v Uber BV (2018), the employment tribunal and Employment Appeal Tribunal looked beyond the documentation and found that Uber drivers were workers despite the contracts saying the opposite. This decision was confirmed by the Court of Appeal, which gave permission for a further appeal to the Supreme Court.

In Pimlico Plumbers Ltd v Smith (2018), the Court of Appeal, and subsequently the Supreme Court, also emphasised the importance of the reality of the working relationship regardless of contractual terms. The courts found the claimant was not self-employed, as the company maintained, but a ‘worker’ and, therefore, entitled to working time rights.

Organisations currently using a range of contracts, such as fixed-term, agency or zero-hours contracts, should consider whether these are still the right choice in terms of flexibility of resource, and the need for stability by those working for them. It is good practice to ensure that all workers, or those on varying contracts, are aware of any vacant positions within the organisation, so they can apply for more stable contracts, if they so wish. This is a legal requirement for employees on fixed term contracts.

Statements of written particulars are required for employees and, from 6 April 2020, for workers too, setting out what rights they are entitled to. Employers’ legal obligation to provide an itemised pay slip for employees became a legal requirement for workers as well from 6 April 2019.

Organisations may have inserted an opt-out clause in relation to maximum working time in their employment contracts, but they should remember this doesn't exempt employees or employers from their duty of care under health and safety legislation.

Our Contracts of employment factsheet has more on contracts and the written statement of particulars.

This area of law is likely to continue to change in the next few years, both as a result of the courts’ response to the new working practices typified by the gig economy, and new legislation prompted by a major review (the Taylor report) into modern employment practices.

Government reports

A Business, Energy and Industrial Strategy Committee inquiry into the future world of work focused on the tax, benefits and employment law rights of agency, casual and zero hours workers and the self-employed. The resulting Employment status review of December 2015, published in February 2017, set out possible reforms without making concrete recommendations.

A report by the Work and Pensions Committee, Self-employment and the gig economy, published in April 2017, recommended making worker status the default position so that employers would have to prove a worker did not have workers’ rights where self-employed status was questioned.

Good work: the Taylor review of modern working practices, published July 2017, made 53 recommendations, including replacing worker status with the term ‘dependent contractor’ to distinguish them from the genuinely self-employed and employees.

The ‘Good work’ plan

The government response, published in February 2018, stated that all the Taylor recommendations, except one, would be accepted. Four consultations followed dealing with employment status, increasing transparency in the labour market, agency workers, and the enforcement of employment rights.

The government’s Good work plan and draft legislation was produced in December 2018. Under two sets of regulations, which will apply fully from 6 April 2020, all workers will be entitled to a written statement of particulars as a right from day one of employment, itemising their basic terms and conditions and specifying probationary periods and family leave. Previously only employees had this right and the last two requirements are new too. Workers also gained the right to an itemised pay slip, and those on variable hours who have been with the same employer for at least a year will have their annual leave entitlement calculated using a 52-week reference period rather than 12 weeks as previously.

Another set of regulations abolishes, from 6 April 2020, the ‘Swedish derogation’ in the Agency Workers Regulations 2010. This allowed temporary work agencies paying agency workers between assignments to avoid matching their pay to permanent workers.

The government has also agreed – but has yet to produce draft rules on this - that workers, especially those on zero hour contracts and agency assignments, should have the right to request more predictable and stable contracts after 26 weeks’ service. In the EU, similar proposals are contained in the Transparent and Predictable Working Conditions Directive.

The draft legislation addresses many aspects of the Taylor report, but one of the core recommendations, and a key aspect of gig economy work, remains unaddressed: amending legislation to provide minimum rights, such as the national minimum wage, for those whom Taylor called ‘dependent contractors’.

The government has said it will bring forward detailed proposals to improve the clarity of the employment status tests.

Case law

If legislation in this area is delayed, future developments are likely to result from the many cases involving gig economy workers going through employment tribunals, and the government has committed to stronger penalties for employers that ignore previous tribunal judgments against them.

However, the government has also agreed that the state, rather than individuals through the tribunal system, should be responsible for enforcing core employment rights, such as NMW, sick pay, holiday pay and unlawful deductions, for the lowest paid employees and workers.

Contacts

Acas – Checking your employment status 

GOV.UK - Employment status 

HMRC - online tool to check a person’s employment status for tax

Journal articles

BASKA, M. (2019) Size of UK’s gig economy doubles in three years. People Management (online). 28 June.

Employment status in the 21st century. (2018) IDS Employment Law Brief. No 1090, April. pp11-18.

MIDDLETON, J. (2018) What we know about employment status. People Management (online). 9 August.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.

This factsheet was written by Jane Mann, Fox Williams LLP, and updated by CIPD staff.

Jane Mann

Jane Mann: Fox Williams LLP

Jane Mann is a partner at City law firm Fox Williams, where she heads up the firm’s employment/HR law team, which was shortlisted for its human resources work in the Legal 500 Awards 2018.

Jane advises both organisations and senior executives, with particular emphasis on those from the technology/gig economy, financial, insurance and professional services sectors. She combines extensive experience of defending employers facing employment claims, with business/legal advisory work, and is an expert on cross-over employment and regulatory issues. She has often had to advise organisations on business critical issues, such as the employment status of their workforce. She co-founded the Employment Lawyers Association, and is associated with many leading employment and HR groups.

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